Fakeouts: How to Spot Them

Breakouts are well-liked by forex traders.

Isn't that correct？

When price “breaks” out of that support or resistance level, one may expect it to continue in the same direction as the break.

Right？ There had to be enough momentum building up for price to break out of the level, right？

Now is the moment to board that train. It's all going swimmingly now. All you have to do now is sit back and wait.

Yes, hold your breath.

Just a few moments longer... To see the price move in one direction... Then, all of a sudden, you're moving thousands of miles in the opposite way!

What the hell is going on？! What happened to “bread and butter and the abolition of global hunger”？

End of story: Like Tom Hanks in The Terminal, you're stuck eating ketchup packets and crackers.

The Levels of Support and Resistance Can Be Tricky

One thing to keep in mind about support and resistance levels is that they are regions where you may expect a reliable price response.

Supporting Factors

Support levels are regions where just enough purchasing pressure is present to override selling pressure and bring a decline to a halt or reversal.

Even if the market breaks through the support level, a strong support level is more likely to persist, giving traders an excellent buying opportunity.

Resistance Levels

Resistance Levels are similar to support levels, however they act in the opposite direction. They have a tendency to bring down or even reverse uptrends.

Selling pressure is just enough to overcome buying pressure and send price back down at resistance levels.

Even if the price temporarily breaks through the barrier level, strong resistance levels are more likely to hold, giving traders an excellent selling opportunity.

We'll go into more detail on fakeouts in the next section, including why we should trade them and how to profit from them.

Learning about breakout tactics isn't enough because breakouts will occasionally fail. We need to know what to do in the event of a fakeout.

This is all part of your forex Jedi training. Fakeouts must be mastered in order to be a Jedi master.